Britain is rapidly entering its worst economic crisis since the 1970s, but it is a crisis hardly discussed by the two rightwing Conservative politicians vying for the premiership.
The National Institute of Economic and Social Research (NIESR) and the Bank of England have both pronounced that we are entering a recession that could last for much of next year. This will serve to aggravate already serious economic, industrial and social problems, with goodness knows how much public unrest.
Yet the message from Liz Truss and Rishi Sunak is that what really matters is whether that Conservative nirvana of tax cuts is offered now or later. Given the manifold examples of the deficiencies of public sector provision, the last thing this country needs is the smaller state and low-tax regime favoured by the Brexiters. Good services have to be paid for.
Meanwhile the Bank, much criticised for having been slow to guard against the onset of an acceleration in inflation, is now piling on the agony. While acknowledging that the main sources of current inflation – rises in energy and food prices aggravated by an economic war declared by Russia – are beyond its control, it has raised interest rates to guard against the possibility of imported inflation setting off a price-wage spiral and making things even worse.
Whether present inflationary circumstances are closely comparable to the 70s, when a price-wage spiral was built into the system, is questionable. These are choppy economic waters, but one thing is certain: the monetary squeeze directed at an attempt to arrest this outburst of inflation will worsen the recession. The Bank’s governor, Andrew Bailey, defends its earlier reluctance to raise rates as a precaution against stopping the recovery from Covid in its tracks. His present concern is that employers are telling him that, with “a shrinkage in the labour force” and problems in hiring, they are “not finding it difficult” to increase prices.
If it were not so serious, there would be something laughable about a central bank that is supposed to be aiming at 2% inflation itself forecasting that it will rise to 13% next year – with the NIESR even concerned that inflation could reach the “astronomical” level of 17%.
Now, we are not the only nation to be hit by Russia’s declaration of economic war. But Brexit is making things a lot worse. In a new study Richard Morris of the European Movement says Brexit is widely recognised as “the worst act of self-harm in modern times”. It has damaged not just us, but Europe generally. As Morris states, Boris Johnson’s “posturing with [Volodymyr] Zelenskiy is no substitute for pan-European and global collaboration in responding to Russian aggression”.
But the economic self-harm is by definition largely ours. The Office for Budget Responsibility’s estimate of a 4% hit to Britain’s productivity or gross domestic product is well known by now. But as the evidence mounts, the NIESR estimates that the hit is nearer to 5-6% of GDP.
This does make you wonder why, to use a phrase favoured by Harold Lever, a Labour minister of the 70s, Brexiters like Sunak and Truss are “frolicking in the margins” of economic policy when the Brexit they promote will seriously undermine anything they try to do.
The consequences are now hitting British business and the general public. When the two contestants for the leadership were recently asked whether the chaos at the Channel ports was caused by Brexit, their instant denials were treated with the contempt they deserved.
Sunak and Truss go on about the need for investment, but British firms’ investment has been stifled by Brexit. The Confederation of British Industry and the Institute of Directors can testify to this. One of the most damning statistical comparisons is that the EU’s GDP a head has grown by 8.5% since Brexit, whereas the UK’s figure is 3.8%. I fear that’s the kind of thing you get when you abandon your nearest and principal export market in the interests of “sovereignty”.
If I were one of the Conservative electorate choosing a new PM, I should much prefer someone like former minister David Gauke, who was fired by Johnson for not being a Johnsonite. As Gauke recently wrote in the New Statesman of this crazy leadership election: “No candidate dare question the wisdom of leaving the EU, argue for measures to repair the damage caused, or even deviate from the policy of breaching international law… The hard Brexiters have won.”
Gauke’s gloomy conclusion is that “Boris Johnson may be on his way out, but Johnsonian populism remains rampant”. Happy holidays!
